Harbortown Marine Products (HMP) manufactures and sells various fixtures for boat cabins. One fixture uses a specialized fitting that is not used in any other HMP product. The management of HMP has considered outsourcing the fitting for several years but has never identified a suitable supplier. HMP has collected the following data on the cost of the fitting: Materials Labor Manufacturing overhead Total Rivard Fittings, a local auto supplier, contacts HMP and tells them that because of the loss of one of Rivard's customers, there is enough capacity to produce up to 5,000 units of the fitting monthly. Rivard has offered to sell HMP any quantity (up to 5,000 units monthly) at a price of $20.75 per fitting. If Rivard supplies all of the 3,100 fittings currently produced by HMP, HMP will avoid all of the variable overhead associated with the fitting and one-third of the fixed overhead. Management estimates that variable overhead for the fitting is $5.05 per unit. Required A Required B $ 6.65 5.05 cequired: . Prepare a schedule that shows the differential costs. . Should HMP continue to make the fittings or buy them from Rivard Fittings? 14.65 $ 26.35 Cost to buy Direct material Direct labor Variable overhead Prepare a schedule that shows the differential costs. Note: Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect. Fixed overhead Total costs S Status Quo Alternative (Make) (Buy) S Difference
Harbortown Marine Products (HMP) manufactures and sells various fixtures for boat cabins. One fixture uses a specialized fitting that is not used in any other HMP product. The management of HMP has considered outsourcing the fitting for several years but has never identified a suitable supplier. HMP has collected the following data on the cost of the fitting: Materials Labor Manufacturing overhead Total Rivard Fittings, a local auto supplier, contacts HMP and tells them that because of the loss of one of Rivard's customers, there is enough capacity to produce up to 5,000 units of the fitting monthly. Rivard has offered to sell HMP any quantity (up to 5,000 units monthly) at a price of $20.75 per fitting. If Rivard supplies all of the 3,100 fittings currently produced by HMP, HMP will avoid all of the variable overhead associated with the fitting and one-third of the fixed overhead. Management estimates that variable overhead for the fitting is $5.05 per unit. Required A Required B $ 6.65 5.05 cequired: . Prepare a schedule that shows the differential costs. . Should HMP continue to make the fittings or buy them from Rivard Fittings? 14.65 $ 26.35 Cost to buy Direct material Direct labor Variable overhead Prepare a schedule that shows the differential costs. Note: Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect. Fixed overhead Total costs S Status Quo Alternative (Make) (Buy) S Difference
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
102.
Transcribed Image Text:Harbortown Marine Products (HMP) manufactures and sells various fixtures for boat cabins. One fixture uses
a specialized fitting that is not used in any other HMP product. The management of HMP has considered
outsourcing the fitting for several years but has never identified a suitable supplier. HMP has collected the
following data on the cost of the fitting:
Materials
Labor
Manufacturing overhead
Total
Rivard Fittings, a local auto supplier, contacts HMP and tells them that because of the loss of one of Rivard's
customers, there is enough capacity to produce up to 5,000 units of the fitting monthly. Rivard has offered
to sell HMP any quantity (up to 5,000 units monthly) at a price of $20.75 per fitting.
If Rivard supplies all of the 3,100 fittings currently produced by HMP, HMP will avoid all of the variable
overhead associated with the fitting and one-third of the fixed overhead. Management estimates that
variable overhead for the fitting is $5.05 per unit.
Required:
a. Prepare a schedule that shows the differential costs.
b. Should HMP continue to make the fittings or buy them from Rivard Fittings?
Required A Required B
$ 6.65
5.05
14.65
$ 26.35
Prepare a schedule that shows the differential costs.
Note: Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.
Cost to buy
Direct material
Direct labor
Variable overhead
Fixed overhead
Total costs
Status Quo Alternative
(Make)
(Buy)
$
SA
0 $
O
Difference
G
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